With the country heading into lockdown and the virus approaching its peak, it was reassuring for all borrowers that they would be given the room they needed should they struggle to make payments. It was particularly reassuring for borrowers who had taken a short-term mortgage that was approaching the end of its term and due to be redeemed through refinance or sale of the property.
The FCA’s guidance urges lenders to refrain from commencing or continuing with the enforcement of mortgages before the end of October and the court system will not hear any mortgage action cases until the end of August. If you are a bridging loan customer you could find that the longer you put off assessing your next steps, the more likely you are to experience a detrimental impact on your finances. Here’s why:
Despite the headlines, government policy was not a payment holiday, but a payment deferral, and so the longer your loan remains in place the more it will accrue unpaid interest and the greater the interest, usually charged on the contractual balance, outstanding. If you ignore the debt until a lender commences recovery action, that action will usually come with associated fees, which will be attributed to your account.
If your bridging loan facility has expired in time within the period, you may face increased interest rates. Remember, moratorium or not, there is nothing in the moves by the government and the regulator which alter the terms of the lending, and these will continue to be applied.
At the time of writing, there is a mismatch in terms of the information about when lenders will be able to commence recovery action. The courts are planning to open for proceedings form the end of August, while FCA guidance suggests that regulated lenders will be released from any handcuffs on enforcement from October.
Either way, there is likely to be a considerable backlog of cases and therefore further delays time from the point of action, during which time your loan balance will continue to grow. This will dissipate equity you have in the property upon any sale and could ultimately reduce your prospects or retaining the property in the future if your exit is refinanced, given the increased secured debt against a potential backdrop of falling property prices).
By taking a proactive approach and assessing your options to refinance or sell the property now, you can do so on your terms while you are under less formal pressure to do so. It’s likely that you will have fewer options if you leave this until further down the line and your choices will be very limited if you reach a point where the court orders that a lender can take possession.
The government policy of payment deferrals and an enforcement moratorium may have provided some pain relief to your problems earlier in the year, but it was not a cure. This pain relief may continue some months into the future, but the underlying problem could worsen during that time and procrastinating could put you in a worse financial position.
If you address the status of your bridging loan and your exit options proactively now, before being forced by circumstance do so, you could find that you are in a healthier financial position for it.
